Friday, April 18, 2008 Vincent Lingga, The Jakarta Post, Jakarta
Commercial deliveries are unpredictable because of conflicting local regulations, illegal payments and crumbling road infrastructure, according to a recent survey of domestic trucking costs by the Asia Foundation and the University of Indonesia's Institute for Economic and Social Research (LPEM-FEUI).
The study, conducted in Sulawesi, East Java, North Sumatra and East Nusa Tenggara, found truck drivers and transportation firms made regular payments to the police, officials at weigh stations and to local thugs at checkpoints along their routes.
Adding to trucking costs are the poor road infrastructure and cumbersome route licensing procedures imposed by regional administrations.
The reasons the roads are in such bad condition include the widespread practice of overloading trucks and inadequate maintenance work. Truck drivers simply bypass weigh stations by paying a noncompliance fee to the local officials.
These problems make the overall vehicle operating costs for trucks US$0.34 per kilometer, as against $0.22 in Vietnam, Thailand, Malaysia and China, the survey concluded.
The findings validated a complaint made earlier by the Food and Beverage Industries Association that hauling cargo from Jakarta to Surabaya required the payment of almost Rp 450,000 in illegal levies to officials at 14 scaling bridges between the two cities.
But it is like an egg and chicken game. Truck drivers claim they have to overload their trucks to be able to cover all the illegal levies they have to pay along the highway.
The findings of the survey show how seemingly hopeless the conditions of our road transportation services are and how incompetent the central government and regional administrations have been in coping with illegal levies on the highway.
Yet more damaging is how ignorant the government has been about the strategic role of efficient road transportation in logistics, as almost 70 percent of the country's cargo is hauled by trucks, and how crucial is superior logistics management to create efficient supply chains.
A 2005 study by LPEM-FEUI of 75 large export-oriented industrial companies at four of Indonesia's largest seaports in Java, Sumatra and Sulawesi concluded that logistics services accounted for an average 14 percent of total production costs, among the highest in Southeast Asia.
This finding confirmed what many businesspeople have long complained about; a high-cost economy that makes the country's exports less competitive in the international market.
The study found the high logistics costs derived mainly from poor infrastructure, illegal levies and arduous bureaucratic procedures.
International studies also have shown that logistics arrangements in Indonesia are still grossly inefficient, as evidenced by the high portion taken by distribution and logistics in the free-on-board prices of goods.
All these problems make Indonesia's logistics capability miserably low and consequently its supply chain grossly inefficient.
This is quite worrisome because efficient logistics -- low transportation costs, short transit times, reliable delivery schedules and careful handling of goods in cold storage chains -- are vital for trade and the smooth distribution of goods.
Globalization requires greatly increased coordination of transportation by road, rail, sea, air and lately also by an entirely new route to market -- the Internet. This makes logistics vastly more complex. The job of ensuring that all these things work together is known as supply chain management.
A study of 150 countries by the World Bank in 2007 concluded that facilitating the capacity to connect firms, suppliers and consumers is crucial in a world where predictability and reliability are becoming even more important than costs.
Being able to connect to global markets is fast becoming a key aspect of a country's capacity to compete, grow, attract investment, create jobs and reduce poverty, the World Bank said.
It is no coincidence that the most competitive economies also rank very high on the Logistics Performance Index drawn on the basis of the study. Most developed countries and Singapore, South Korea, Japan, China, India rank high on the index.
Many companies have reengineered their supply chains to gain a huge competitive advantage. What has made such giant retailers as Wal-Mart and Carrefour highly competitive is their superior logistics management. The market leaders all have supply chains that are more responsive to customer demand.
Things like transportation, purchasing and warehousing, once considered merely part of the cost of doing business and often managed as separate entities, are now seen by most managers as a strategic agenda.
Industrial companies cannot manufacture goods without the inputs they need and in the case of Indonesia most manufacturers still rely on imported materials and parts and components. Hence, if delivery times are expedient and reliable, manufacturers should not hold large inventories of inputs, thereby cutting their inventory costs.
Superior logistics management is the key to making Hong Kong and Singapore efficient shipping hubs for their neighboring countries. Besides their highly efficient port-handling systems, their auxiliary services like customs and freight forwarding are also smooth.
However, an efficient supply chain requires a minimum set of conditions, notably efficient transportation, expedient customs services and production standards to ensure the free flow of goods, services (including labor) and investments.
Without efficient logistics Indonesia will not be able to become part of the global supply chain.
